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 “Every billionaire is a policy failure.”

The world is faced with mind-numbing statistics on global economic inequality once again, with the release of Oxfam International’s annual report ahead of the World Economic Forum in Davos. Inequality between and within countries has assumed alarming proportions. According to Thomas Piketty, there has been a significant increase in inequality between 1980 and 2007 – especially in rich countries – with about 70 per cent of the addition to the GDP going to the top 10 per cent of the world’s population.

Inequality is far from a natural course of progression – it has been a political choice. The factors that drive and deepen inequality found institutionalization in the birth of the neoliberal project, which emerged in the late 1960s and 1970s due to a perceived threat to the power of the corporate capitalist class by the unionization of labour, revolutionary movements in much of the developing world as well as communist influence in France, Italy and Spain. Capital thereby sought to reorganize itself to recover its economic and political influence by waging a battle on ideological, political and economic fronts – only to pave the way for a stark and steady financialization of the global capital along with structural changes in the functioning of national and international markets and labour. Concurrently, countries moved to implement market liberalization reforms like deregulation of capital and exchange controls, lowering trade and tariff barriers, privatization of industries and services, reduced tax rates and lower public spending. Together, these neoliberal reforms have effectively diminished the role of the state in being able to raise and mobilize domestic revenue. Corporate income taxes have fallen by half since the 1980s, countries and regions across the world are engaged in fierce tax competition with one another, and the international community refuses to address loopholes in the international tax system that facilitate gross tax abuse.

In India, income and wealth inequality is deeper than it has ever been in a century. According to Oxfam, the top 10 per cent of India’s population holds 77.4 per cent of the national wealth, and the contrast sharpens when the share of the country’s top 1 per cent of the population is considered – a whopping 51.53 per cent. While the wealth of the top 1 per cent increased by 39 per cent in 2018, the bottom 50 per cent of the population saw their wealth increase by a mere 3 per cent. Using a different methodology which combined household surveys, national accounts and newly released Indian tax data, economists Lucas Chancel and Thomas Piketty tracked the dynamics of Indian income inequality from 1922 to 2015 – only to reveal that between 1980 and 2014, the top 0.1 per cent of the country’s population saw its wealth grow 550 times the rate of the bottom 50 per cent of the population.

In so far as inequality is ultimately about more income and wealth accruing to the rich rather than the rest of the populace, inequality deepens poverty and is intrinsically antithetical to the realization of human rights and gender equality. Inequality impacts material human well-being as well as access to resources and public and private services. It also results in inequality of opportunity through myriad ways, and adversely affects social mobility. Economic inequality drives residential segregation by income, and high-poverty neighbourhoods create lasting disadvantages for families that live there. Socially, inequality is linked to unemployment, crime, violence, humiliation and exclusion. Inequality impacts public participation, representation, public institutions and erodes trust in democratic processes, and thus may fuel corruption and civil unrest.

The central issue with the way inequality is largely perceived is that it does not take into account that the super-rich are a fundamental part of the concern. The urgency inequality presents was undermined even by the Sustainable Development Goals (SDGs) agreed upon by 193 United Nations member states, which are expected to be used as a development framework by governments between 2015 and 2030. The SDG target on reducing income inequality commits to progressively achieving and sustaining the income growth of the bottom 40 per cent of the population at a rate higher than the national average, but it makes no mention of the top of the distribution – the rich. The SDG target on income inequality therefore takes the position that the wealth of those at the top of the pyramid is not of great significance as long as the population in the bottom rungs of income distribution see improvement in absolute figures. This target not only refrains from commenting or clarifying the role of top incomes but also allows for greater concentration of incomes at the top of the pyramid.

Furthermore, the SDG inequality target does not elaborate the desired level of growth in the incomes of the poor, only to ambiguously encourage any growth above the national average. It is absolutely crucial that countries measure the growth in the income of the bottom 40 per cent of their population against the richest 10 per cent. Unlike other measures of inequality, the Palma is the ratio of national income share of the top 10 per cent households to the bottom 40 per cent, and holds that the distribution is skewed at the tails. Having a specific target for the growth in the incomes of the poor therefore, is necessary when the absolute rise in the income of the bottom 40 per cent is compared with that of the top 10 per cent – implying that a similar rise in percentage points in the incomes of the poor and the rich would yield vastly different increases in absolute numbers.

One of the fundamental ways in which countries can address economic inequality is by redistributing wealth through a well-resourced public provisioning system by means of a just, fair and progressive tax system in place. Direct taxes on income, assets, profits and inheritance are progressive as they depend on the taxpayer’s ability to pay, whereas indirect taxes on consumption of goods and services are regressive as they are indiscriminate. The poor and marginalized are especially affected by high indirect taxes as the proportion of one’s income going towards indirect taxes tends to be higher at lower levels of income.

The rich and corporations should pay more taxes on their incomes, profits and assets to fund public services for everyone. Currently, two-thirds of India’s tax revenue comes from indirect taxes – implying that our incomes, profits and assets are grossly under-taxed while taxes levied on our consumption are some of the highest in the world. Despite this ratio, India suspended the Inheritance Tax in 1986 and abolished the Wealth Tax in 2016, and has recently reduced its statutory corporate tax rate to 25 per cent on companies with a gross turnover up to Rs. 250 crore. The country would do well to consider re-introducing the wealth tax, the inheritance tax and re-establish higher taxes on incomes and profits.

Given the fact that economic inequality has severe non-economic outcomes, working towards bridging the gap in the incomes of the rich and poor will help countries strengthen economic growth, secure a complete realisation of human rights for all especially for the most disadvantaged sections of the population, and encourage political representation.

The rising tide has clearly not lifted all boats – while some are in luxury yachts, most of the world is in sinking dinghies.

 

The views expressed in this piece are those of the author, and don’t necessarily reflect the position of CBGA. You can reach Neeti Biyani at neeti@cbgaindia.org.